Global Themes

Broad gains on Monday lifted the U.S. dollar to late December peaks versus several of rivals. The euro struggled while Canada’s dollar drifted below September peaks. America’s dollar benefited from solid jobs data on Friday that kept the Federal Reserve on track to raise interest rates this year. The euro backpedaled after it failed to rise above key technical levels in recent days which prompted many bulls to pull some chips off the table. While in better spirits, the U.S. currency could struggle to sustain advances. That’s because market sentiment continues to favor the euro thanks to the bloc’s revving economy which is steering capital to the right side of the Atlantic. Key focal points of the new week include euro zone unemployment Tuesday, U.K. factory growth Wednesday, and Friday numbers from the U.S. on consumer inflation and retail sales.


The euro dropped to one-week lows after impactful data last week prompted many to take profit on its quick start to the year. On Friday, inflation data from Europe took a wrong turn, moving further away from the ECB’s just below 2% bull’s eye. By contrast, the greenback found tentative support from U.S. jobs data showing thicker paychecks. Underlying sentiment remains positive toward the euro, suggesting pullbacks may prove short-lived, particularly if euro area unemployment improves as expected Tuesday.


A respectable U.S. jobs report Friday and the euro’s inability to clear resistance helped the greenback begin the week in bullish fashion, up 0.4% on a trade-weighted basis. Friday data showed the U.S. economy added 148,000 jobs in December, which underwhelmed forecasts of nearly 200,000. Yet unemployment held at 17-year lows of 4.1% and wages inched higher, scenarios that kept the Fed on track to raise rates as soon as March. How long of a respite the dollar enjoys may hinge on U.S. data Friday on consumer inflation and retail sales. Members of the Fed speak every day this week, comments that could hint at the likelihood of a first quarter rate hike. 


Canada’s dollar steadied after jobs-driven gains on Friday propelled it to three-month peaks. Markets are pricing in a more than 70% chance of the Bank of Canada raising interest rates to 1.25% from 1.0% on Jan 17, after last week’s surprisingly spectacular jobs report. Canada netted nearly 80,000 jobs for a second straight month in December which knocked the jobless rate to 5.7%, the lowest in four decades.


Sterling hovered near but below recent 3 ½ month peaks, ceding recent gains to the rebounding U.S. currency. An uptick in U.K. political uncertainty also weighed on sterling after Britain’s prime minister said over the week that she would reshuffle some cabinet positions. On the data front, top focus will be on Wednesday numbers on factory output and trade, indicators that should shed light on how Britain’s economy fared over the final quarter of 2017.


The yen steadied after an overnight slump to two-week lows. That’s a sign the greenback’s tentative rebound against the euro and other peers doesn’t mark a major reversal in its downtrend.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.